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Is there a way to recover funds if both channel partners suffer loss of the latest channel state? Would both having their static-channel-backups be sufficient to recover the channel?

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I don't know exactly how static channel backups are implemented in lnd and what is being saved there but I can give you some general thoughts and at least a partial answer.

If A and B both lost their channel state but still have their master key / mnemonic seed they can probably derive the key that was used in the 2-2 multisig wallet that is used to encode the payment channel.

Generally if two parties agree on how to spend the funding tx of that multisig wallet (e.g. 50/50 or in a different ratio as someone might have a screenshot of the channel state and both parties consent) they can do so.

  • It’s probably worth nothing that the software doesn’t currently include code that will allow participants to easily negotiate and create such a transaction, post-data-loss (at least, not as far as I know). It is entirely possible to do so as long as the privkeys are available, but it would require hand-crafting a transaction, so it’s kind of an ‘advanced user’ option. – chytrik May 3 at 20:41
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    Fully agree with you. Actually thought of not answering but since I know murch I assumed he might be interested in theoretical cases – Rene Pickhardt May 3 at 20:48
  • Yea I think it’s a worthy answer, at least in the almost-worst-case scenario of channel state lost, but keys retained. At the very least it might give someone valuable clues towards solving their problem one day :) – chytrik May 3 at 20:52
  • Thanks, that's helpful. Gonna seed the question in the LND slack, maybe someone with intimate knowledge of the implementation has a more comprehensive answer. – Murch May 7 at 15:20
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Short answer: No. If both nodes lost their channel state, then the balance of the channel is lost

static-channel-backups (SCB for short) do not store any information on the state of the channel, instead they store information about the channel itself. The purpose of the SCB is for the fallen node to recover the channels they had but not the state of those channels.

That responsibility would fall onto the other participant in the channel.

However, if both participants have lost their channel state but still have up to date SCBs then the funds are completely lost. Although there are multiple SCBs here, they do nothing to recover channel state.

There are more nuances here. SCBs are not golden bullets when it comes to recovering the funds lost in a channel, and in fact specifically do nothing to recover or ensure those funds recovered and the user is not breached.

Are the funds completely lost?

But if the question relies solely on if all the funds in the channel were lost to the ether, then the answer is yes, the funds are recoverable.

SCBs are irrelevant - the channel is grounded by the funding tx. If you still have your master seed, you can generate the relevant address for the funding tx. If you're unsure what the funding tx is, you can always scan the blockchain for addresses.

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